Social housing package off the table for good, says Pallas

The Andrews government has dumped its controversial $800 million social housing tax, even if Labor is re-elected, after fierce resistance from the property sector.

Less than two weeks after it was announced, Treasurer Tim Pallas on Tuesday ditched the package, which could have streamlined planning approvals, creating $7 billion of economic uplift over 10 years while building 1700 new affordable homes for vulnerable Victorians.

State Treasurer Tim Pallas.Credit: Luis Enrique Ascui

Mr Pallas said the rare policy retreat occurred because the property sector reneged on an agreement to support the tax and opposed returning a portion of the new profits to the government to pay for social housing.

“They are done, they are dusted, and they are finished,” he said. “This is clearly a disappointing result.”

The Treasurer said the government reached a “grand compact” with industry bodies and was surprised when property groups launched a “misinformation campaign” highlighting the possible effect on home buyers if the cost of the tax was passed on through higher house prices.

Sector leaders reacted with frustration and said they never agreed to support the levy, which was aimed at providing a long-term funding solution for Victoria’s nation-leading public housing shortage.

The Age reported on Saturday that the government faced resistance to the proposal from a key Labor-affiliated union and some government MPs, who were worried the tax would lead to a rise in house prices, with developers increasing prices to offset the financial hit.

Despite the broader economic benefit of quicker planning approvals, Mr Pallas confirmed some of his colleagues held a “measure of concern” about the political cost of a joint campaign between wealthy property peak bodies and the state opposition in the lead-up to the November election.

In a meeting with interest groups on Monday, Mr Pallas said the government was prepared to bin its entire package if property industry bodies continued to publicly raise concerns that the cost of the tax would ultimately be paid by homebuyers.

The meeting ended with an agreement by the government to show property groups modelling that underpinned the proposal, but the government scrapped the policy before this could occur.

The government had proposed a 1.75 per cent tax on building projects with more than three dwellings – affecting most residential projects.

The Property Council wanted a tax rate closer to 1 per cent, while other major groups, including the Housing Industry Association and Urban Development Industry of Australia, did not support the tax at all and said they were blindsided by it. The membership of the HIA and UDIA are most affected by the levy because all of their members are residential builders to whom the tax applies.

The government argued the planning changes would deliver billions of dollars in extra profits and that it was fair and reasonable for developers to help pay for social housing.

Property groups spent the past two weeks quoting figures that suggested the entire cost of the tax would be passed on through higher house prices, drawing a fierce reaction from the Treasurer.

“The government is more angry than fearful of a campaign because, in effect, a lot of nonsense has been spoken and written about these proposals by people who have a vested interest,” Mr Pallas said.

Property Council chief executive Danni Hunter told The Age she was “extremely disappointed” the government took the decision. She said the streamlining of planning reforms had widespread industry support and dumping this component of the package would be detrimental.

“I’m also extremely disappointed in the views of some other industry associations who didn’t see the real opportunity to achieve industry reform,” she said, referring to the stiff opposition of other lobby groups to any kind of tax on the industry.

UDIA Victorian chief executive Matt Kandelaars said the government’s backdown came after Victorian home buyers “expressed their shock and anger at the government’s proposal to tax those who are chasing the home ownership dream”.

”The only place where a social housing tax and planning reform is linked is within the bubble of Spring Street politics,” he said.

”It’s frustrating that the government has chosen to hold to ransom the improvement of inefficiencies within a state-sponsored planning system that would help to accelerate the Victorian economy out of the pandemic, with a $20,000 tax on home buyers. ”

Julijana Todorovic, spokeswoman for Labor for Housing, an internal party pressure group, said she was devastated the government had ruled out the reforms even if it won the next election.

“It’s incredibly disappointing that we had a once-in-a-generation opportunity to move from Victoria being the state with the least social housing per capita,” she said. “Whether it was a scare campaign or poor planning, either way, we now don’t have a long-term funding solution.”

Ms Todorovic said it was unfortunate the government did not consult more widely about its planned reforms, including with unions that may have been affected by components of the package, including the ending of council rates for public homes.

Housing Industry Association executive director Fiona Nield said the housing tax was “bad policy that likely would have seen young Victorians join an ever-growing queue for social housing, rather than helping them.

“The fact this tax was announced and then abandoned within 10 days demonstrates that this Government has no clear strategy or policy on housing affordability.”

Shadow treasurer David Davis said the government had made a “tactical retreat” to fend off an election fight over housing affordability, which the Coalition had stated it would campaign on.

”It’s a red-hot tax waiting in the wings to clobber new home owners. Make no mistake, if they are re-elected, the tax will be back,” Mr Davis said.

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